Benefits of building an investment property in your backyard: Summit Projects

Friday 29 Jul 2016

Do you own a home on a large block of land in an area that's in high demand? You could be sitting on a gold mine and not even know it.

As Perth's population looks to maintain growth and demand for property in inner city locations seems to soar, your backyard could be the key to unlocking wealth.

More and more West Australians are taking advantage of zoning changes by swapping the hills hoist for a duplex development or triplex development investment.

Here's how it works. Say you've owned a house on an 800sqm block for five or 10 years. In that time you've partially paid down the mortgage, leaving you with some decent equity. You could borrow against this equity to fund a subdivision, which could occur in two ways:

  1. Keep your existing home and build in the backyard
  2. Demolish your existing home and develop the entire property.

Benefits of developing your backyard

As long as you conduct a careful feasibility study, developing your property can be a profitable venture.

Generate multiple rental incomes

By subdividing your property into a duplex development or triplex development, you'll have the potential to double or triple the earning ability of your land. You could live in the existing home while renting out the new home/s. And if rental returns are strong enough, you could be looking at a positively geared investment.

Maximises your land's value

Many homeowners value the lifestyle benefits of a large backyard. However, if you're willing to sacrifice some square meterage, you'll maximise the value of your land by releasing cash from an unused backyard – something you probably didn't factor in when originally buying the property.

Relatively low risk

It's simple maths really - one lot, multiple dwellings. Unlike a traditional single house development where you build one home on one lot, a duplex development or triplex development allows you to split the land cost between two or three dwellings. Of course, the cost of subdivision must be factored in, but when you consider that each new property you create could be valued almost as much as a similar sized dwelling on a larger block, it's easy to see where profits can be made.

Generate cash flow

Put simply, the more money coming in, the more you have to reinvest in other opportunities.

Opportunity to sell existing house

Many investors stay in the existing home when developing their backyard. However, you could potentially sell the existing house (often for close to the price you paid for the land and house originally), which could be free of capital gains tax. You could use this to pay off your mortgage or release much needed funds for another investment.

Can I develop my backyard?

If you want to maximise the development potential of your backyard, you'll need to first gain an understanding of the Residential Design Codes of Western Australia, commonly known as 'R-Codes'.

As a basic rule, R-Codes stipulate how many residential units are allowed to be developed on a 10,000sqm block of land. You can use this to work out the minimum size of a residential block. For example, a 1000sqm lot in an R20 zoning would allow you to subdivide into two blocks of 500sqm.

However, R-code rules shift all the time. For instance, in August 2013 the codes went through significant changes to cater for increased demand for housing. One change saw the R20 code change its average lot size to 450sqm (down from 500sqm), while the new R60 code now permits an average lot size of 150sqm (down from 180sqm).

It's crucial to stay on top of R-codes to ensure a successful backyard development.

Ready to see what lucrative opportunities are tied up in your backyard? Talk to Summit Projects. They specialise in subdivisions, from triplex developments, to duplex developments and strata developments (Perth).

That means they can help you work out the best way to maximise your site's potential, as well as navigate R-coding and council requirements.

For more information from Summit Projects, click here

- Property Observer